The Canadian dollar has underperformed as of late, despite the fact that we have seen stable oil prices. When you look at the Friday candlestick, it is most decidedly positive for the US dollar and that is a bit of a surprise as it does not fit the narrative. After all, the crude oil markets have been relatively strong while the general consensus is that the US dollar is going to continue shrinking. Having said that, the USD/CAD pair seems to have not gotten the memo.
The fact that we ended up forming a hammer that was preceded by a couple of shooting stars tells me that there are a lot of questions right now that have to be answered. It's also worth noting that the pair has been extraordinarily resilient as of late, despite the fact that everybody seems to be short the US dollar. If we can break above the 1.28 handle, I think at that point in time we would see more money rushing into this market. The next major resistance barrier would be the 1.30 level from a psychological and structural standpoint, and that would be my target.
This pair does tend to be very choppy on trend changes, and that might be what we are seeing. After all, the two economies are highly intertwined, so there is a lot of commercial trading as well, which has nothing to do with the directionality of the pair. That being said, if we were to turn around and break down below the 1.25 handle, that could lead to fresh selling. It's worth noting that the 1.20 level underneath that was touched a few months back is a major floor in this market on a monthly time frame. The question now is whether or not we have hit the bottom.
Traders will continue to chop bank and forth but it must be noted that we are getting very close to getting a golden cross, which is when the 50 EMA crosses above the 200 EMA on the daily timeframe. This is a long-term buy-and-hold type of signal that some people pay attention to. While it has been very noisy and choppy on the way higher, it should be noted that we have rallied for quite some time.
